Target’s Innovative Fulfillment Approach Leads to Unprecedented Growth
At A Glance
- Target grew revenue by another $3.1 billion and saw additional traffic of 2.1% in 2022
- Target's business strategy puts stores at the forefront of its flexible fulfillment approach
- Digital sales have increased from $19.7 billion in 2021 to $20.0 billion in 2022
- Target increased its digital fulfillment capabilities and supply chain capacity
- Target completely remodeled 140 stores and made investments in hundreds more
Target's recent sales growth exhibits the relevance and strength of its strategy. At this time last year, Target had passed a key milestone to become a $106 billion company. The company grew revenue by another $3.1 billion and saw additional traffic of 2.1% in 2022.
The primary unit share gain was seen in Target’s core merchandising categories suggesting that consumers were constrained due to inflation and had to be selective about where and how they spend their money. The company's sales and traffic growth indicate customers choose to shop with Target despite inflation-related constraints.
Target's business strategy puts stores at the forefront of its flexible fulfillment approach, fulfilling more than 96% of total sales and offering guests convenience at a lower fulfillment cost. In-store sales have increased from $84.9 billion in 2021 to $87.6 billion in 2022. Digital sales have increased from $19.7 billion in 2021 to $20.0 billion in 2022.
“As spiraling inflation forced families to put discretionary purchases on hold and focus most of their spending on necessities and there was a rapid escalation to the most expensive operating environment we've seen in decades,” said Target’s Chairman and CEO Brian Cornell in a recent earnings call with analysts. “Those variables and many others continue to have a profound effect on the retail landscape.”
However, the durability of Target’s business model lies in its flexibility. The company considers its ability to provide affordable joy its differentiator in the marketplace. Target continues to see its benefits in the near term and intends this to be a strong pillar of its strategy over the long term. Target maintained its consistent stream of innovation across its assortment. It continued to roll out new owned and exclusive brands like fashion-forward names - Houston White x Target and Future Collective.
“I might start by recognizing that our growth in '22 didn't come easily. It wasn't nearly as profitable as we expected to be over time. In 2020 and 2021, our team put in the effort and the hustle to keep pace with the most turbulent business environment many of us have ever seen,” added Cornell. “They brought the expertise and excellence to take the company to a new level, but while we gain incredible scale by continuing to prioritize our guests, I acknowledge we're still developing some of the tools to marshal that scale efficiently.”
To support its growth and dedication to quick delivery times, Target increased its digital fulfillment capabilities and supply chain capacity, adding six new sortation centers and one new distribution center, as well as finding ways to work more effectively and control its shipping costs. The company used the same-day fulfillment options of Order Pickup, Drive Up, and Delivery via Shipt to complete more than 50% of its digital sales.
Target completely remodeled 140 stores and made investments in hundreds more through projects to improve the effectiveness of its same-day services. It also built and opened Ulta beauty shop-in-shops while expanding Disney and Apple experiences. Furthermore, Target opened 23 additional stores, including one with a larger footprint, reimagined design components, and more stores in significant urban markets and on college campuses.
“With the foundation in place and operating at scale, we started to explore new capabilities. In 2020, we made fresh and frozen groceries available. In 2021, we added adult beverage and expanded our app to give guests a more customized experience,” said Target’s EVP & COO, John Mulligan. “Last year, we began testing Starbucks at Drive-Up. And today, we're announcing the next phase of our Drive-Up services with drive up returns, which started as a pilot last year and will be available across the chain by the end of the summer.”
Since the introduction of Target Circle in 2019, Target has continued to work towards guest engagement, personalization, and loyalty. The user base has almost doubled since then, and Circle now stands at the center of its increasingly connected loyalty system. Moreover, in 2022, the company offered attractive promotions, compelling everyday price points on essential items, and simple and free fulfillment and payment options, like its new RedCard Reloadable Account. This new feature offers all the benefits of its RedCard program without needing an existing bank account or credit check.